Dish Network Earnings: Subscriber Losses Continue To Impact Revenues
Dish Network‘s (NASDAQ:DISH) stock declined marginally following its Q1 release on Monday, May 1. ((DISH Network Reports First Quarter 2017 Financial Results, May 1, 2017, Dish Network Press Release)) Dish lost 143,000 pay-TV subscribers in the quarter despite the addition of 547,000 gross new Pay-TV subscribers. Additionally, the company’s ARPU declined to $86.55, indicating that there were likely more Sling TV subscribers, who generally pay lower monthly fees. The company also participated as a bidder in the FCC’s incentive auction, and management stated that the company’s options are still open in terms of how it will use its spectrum holdings.
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Sling TV Subscriber Growth
Dish’s Pay-TV business witnessed a decline during the quarter even as it activated approximately 547,000 gross new Pay-TV subscribers. While the company does not disclose standalone numbers for Sling TV currently, we believe that the net Sling TV subscriber adds have helped reduce the rate of decline in the pay-TV subscriber base. Since many of the pay TV additions were for Sling Tv, which is offered at a lower price point, the company’s Pay TV ARPU declined to $86.55 from $87.94 a year ago. As a result, Pay-TV and broadband revenues declined to $3.64 billion for Q1 compared to $3.78 billion in the quarter a year ago. [1]
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Dish’s management believes that Sling TV is well poised to take advantage of changing video consumption behavior and changes in preference towards streaming. While this will likely put pressure on the company’s ARPU given Sling TV’s lower price point, it should still help Dish shore up its pay-TV revenues overall, as it will help the company mitigate the risk of cord-cutting. However, competition in the video streaming market is intense, with the presence of major players such as Netflix (NASDAQ:NFLX), Amazon and Hulu. Therefore, we expect that Dish will continue to lose pay-TV subscribers throughout our forecast period, albeit at a slower pace. This loss, coupled with lower ARPU, will negatively impact revenues in the future
Company Hints At Possible Use Of Its Spectrum
Dish’s spectrum holdings constitute nearly 60% of its valuation, according to our estimates. At the recently concluded FCC auction, Dish spent $6.2 billion on the spectrum for the 600 Mhz frequency. Following the auction, Dish now controls a much more diverse portfolio of spectrum that can be used for both streaming videos and/or providing cellular signals for long distance services.
The company has stated that it is planning to use the spectrum for the Internet of Things (IoT), but has not ruled out any other possibility, including the sale of spectrum to other players. These statements lead us to believe that Dish has yet to firm up its strategy for its portfolio of spectrum. Nevertheless, we will continue to watch for any new developments regarding the use of its spectrum.
We are in the process of updating our model. At present, we have a $62 price estimate for Dish Network, which is about in line with the current market price.
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